How To Be A Successful Landlord

How To Be Successful As A Landlord

Residential real estate has become an attractive investment thanks to recent years of  low mortgage interest rates and home value increases in many areas. Becoming a successful investor will afford you supplemental monthly income, additional tax break advantages and the use of other people’s money to cover mortgages costs, while your investment increases in value. Not Bad!

Picking The Right Rental Property

Picking the right rental property is the launching pad of being successful as a landlord. It should be a property that will appeal to renters, maximize your income with minimal costs and of course, appreciate in value while you are renting it out.

• The property should be situated in a convenient area where the demand for rentals is high - You will want to check out how long properties are staying on the market unrented and how many vacancies there are in the area. You don’t want to own a rental property in an area that is already saturated with unrented rentals.

• Opt for a property that is in good condition and easily maintained - If you are acquiring a property with excessive repairs and maintenance expenses, the profit margin of your investment will be seriously impacted. Keep in mind, that what you do shell out on upkeep and repairs for a rental property is typically tax-deductible.

• Find out what type of property is in demand - In some areas, houses are in demand.  In others, townhouses, condos, or multi-family units may be a better investment.

• Find out what the experts are saying about the rental market for the area in the near future -  Know what plans are underway affecting changes in the neighborhood, such as road construction, plans for a strip mall or new home community being built near by.

Know What You Can Afford Ahead Of Time

• Purchase Amount - How much money do you actually have to invest for a down payment and closing costs, the size of the loan you will qualify for and the kind of payments you can afford. ”A Lender will typically expect a down payment of 20% - 25% for rental property”, states Bill Moore, co-founder of Landlord.com. - Some lenders want as much as 40% down. There are lenders out there that are willing to accept a smaller down payment in exchange for a higher interest rate. Shop for the best lender for your financial situation.

• Ownership Costs - Be aware of costs that will surface after you’ve purchased your rental property. It’s a good idea to stash some cash in a reserve fund for unexpected repairs or for months when the rental may be unoccupied. Putting at least 3 months of rent in reserve would be wise - A major repair or a costly eviction could be a potential disaster for your bottom line. Some other costs that you will need to consider are the property’s taxes, utilities and services.

• Income - Find out what other rentals, comparable to yours, are charging so that you can set a competitive rent for your property. Calculate you’re your income, assuming that you will have periodic vacancies between renters to factor as well.

• Tax Breaks - Most property owners take a tax deduction for mortgage interest, property taxes and other expenses as well as depreciation on the value of the property every year. You may even be able write off up to $25,000 in losses each year if your adjusted gross income is under $100,000. For information on tax issues, see IRS Publication 527, Residential Rental Property, and speak with your tax accountant.

• Expected Profits - Don’t expect to cover all your costs in the first year or so. This doesn’t mean that it’s not a sound investment. If you hold onto the property long enough, inflation will usually increase the rents you can charge, eventually providing enough income that exceeds expenses. Properties will typically increase over time, with capital gains as your reward.

Finding Good Tenants

Before you even start looking for tenants, decide what your rental criteria will be. Here are 7 key factors to consider:

1. Rental price
2. Length of lease
3. Minimum income requirement (3.5 times higher than the annual rent is the typical rule of thumb)
4. Who will be responsible for what utilities
5. Smoking, pets, and number of occupancy restrictions
6. Who is responsible for repairs, yard, pests, and maintenance
7. Verifiable personal references and recommendations from previous landlords

Screening And Application Process

Verify references, ask questions and screen all prospective tenants. Ask for legal identification, then verify the information they provide. Credit checks can be done for about 10 bucks and a more complete report, which includes a public records search for lawsuits, previous rental evictions and criminal records, can be obtained from tenant-screening agencies for about $20 bucks. Landlords agree that one of the biggest mistakes you can make is to skip running a credit report on every applicant.

Keep in mind; although you have the right to choose who lives in your property, the Fair Housing Act prohibits discrimination based on race, color, religion, handicap/disability, gender or national origin.

Summary

By picking the right property, knowing what you can afford and choosing good tenants, you will have what it takes to be among the successful landlords in today’s residential real estate investment arena.

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